HEXO Provides Update on Redecan Acquisition

Published: July 15, 2021

HEXO Provides Update on Redecan Acquisition

HEXO Corp announced, that in connection with its previously announced acquisition of the entities operating the business of Redecan,  it has now obtained and will be shortly filing the recently completed audited consolidated financial statements of Redecan for the financial year ended December 31, 2020 (“FY20”) and the unaudited interim financial statements for the first quarter ended March 31, 2021 (“1Q21”) prepared in accordance with Accounting standards for private enterprises (“ASPE”). The Company previously announced a definitive share purchase agreement to acquire Redecan, Canada’s largest privately-owned licensed producer.

“Redecan has the top consumer loyalty in Canada, impressive market share and leading products in key categories. Today, we are excited to finally share additional financial information with HEXO shareholders,” said HEXO CEO and co-founder Sebastien St-Louis. “Redecan’s historical financial statements demonstrate exactly what we already knew: Redecan is one of the fastest growth LPs in Canada with positive income from operations, impressive margins, lean operational efficiency and strong revenue. Once closed, the acquisition will further strengthen our position as a leader in the Canadian cannabis industry, bolster the Company as we look towards becoming a top three global cannabis products company and put us firmly on the path towards positive EPS.”

Key Financial Highlights (as per ASPE unless otherwise stated):

  • Revenue, net of excise duties of $73.6M for F20 and $24.7 million in Q1 F21, representing an increase of 146% over Q1 F20
  • Unadjusted EBITDA of $28.9M for F20 and $12.4M for Q1 F21, per the following reconciliation:
Q1 F21 F20
Net Earnings 6,913,624 11,624,161
Add back:
Amortization 4,216,528 12,174,795
Impairment loss on property, plant and equipment 37,235 588,593
Provision for income taxes 1,230,000 4,499,595
Unadjusted EBITDA 12,397,387 28,887,144
  • Income from operations of $8.3M and net earnings of $6.9M in Q1 F21.
  • Income from operations of $16.7M and net earnings of $11.6 million in F20.
  • Gross margins (gross margin divided by revenue, net of excise duties) of 51% in F20 and 58% in Q1 F21.
  • Selling, general and administrative costs, (defined as General and administrative, plus marketing and promotion, plus research and development) as a % of sales of 27% in F20 and 23% in Q1 F21.
  • Depreciable capital base, consisting of property, plant and equipment, was $84.1M at December 31, 2020, the lowest of any of the top 6 licensed producers in Canada.

Proforma Highlights for the Nine Months ended April 30, 2021 for HEXO Corp and the Nine Months ended March 31, 2021 for Redecan, adjusted to International Financial Reporting Standards (IFRS)*:

  • Net revenue of $155.6M.
  • Gross margin before fair value adjustments of $69.1M, or 44.4%.
  • Income from operations of $38.6M.

The Redecan acquisition is expected to close in calendar Q3 2021, subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals and the shareholder approval described above required under TSX rules.

Redecan’s historical financial statements for the financial year ended December 31, 2020 and for the first quarter ended March 31, 2021 as well as certain pro forma financial statements giving effect to the acquisition of Redecan by HEXO have been filed or furnished, as applicable, as schedules to an amended and restated material change report dated July 14, 2021 available under the Company’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov respectively.

About HEXO
HEXO is an award-winning licensed producer of innovative products for the global cannabis market. HEXO serves the Canadian recreational market with a brand portfolio including HEXO, UP Cannabis, Original Stash, Bake Sale, Namaste, and REUP brands, and the medical market in Canada, Israel and Malta. For more information, please visit www.hexocorp.com.